China gains major advantage if US bans interest on stablecoins, Coinbase exec warns

A senior executive at Coinbase has warned that U.S. lawmakers risk handing a strategic advantage to global rivals if they limit rewards on U.S.-issued stablecoins, as China moves to pay interest on its central bank digital currency (CBDC), the digital yuan.

In a post on X on Tuesday, Faryar Shirzad, Coinbase’s chief policy officer, said the debate over whether U.S. dollar stablecoins should be allowed to offer yield under the GENIUS Act has taken on greater urgency after China’s central bank announced it will allow banks to pay interest on the digital yuan.

“For those who misunderstand what’s at stake,” Shirzad wrote, pointing to China’s move as evidence that the competitive landscape for digital money is evolving.

“Tokenization is the future and the GENIUS Act was a visionary move by POTUS and Congress to ensure U.S. dollar stablecoins issued under U.S. rules would be the primary settlement instrument of the future,” said Shirzad.

He cautioned that if Senate negotiations over the market structure bill mishandle the issue of stablecoin rewards, it could give global rivals “a big assist” by giving non-U.S. stablecoins and CBDCs a meaningful competitive edge.

“Lobbyists for entrenched incumbents will always fight change,” Shirzad added. “It’s critical for negotiators to protect the primacy of the U.S. dollar and the U.S. financial system, not just incumbent interests.”

China’s CBDC push

Shirzad’s comments come as China prepares a significant shift in its CBDC strategy aimed at boosting adoption of the e-CNY, which has struggled to gain widespread consumer traction despite years of pilot programs.

The People’s Bank of China announced earlier this week that it will allow commercial banks to pay interests on clients’ digital yuan holdings under a new framework set to take effect on Jan. 1, 2026.

Under the new policy, the e-CNY will transition from functioning as digital cash to operating as “digital deposit currency,” said PBOC Deputy Governor Lu Lei.

Debate over incentives

The GENIUS Act, passed into law in July, bars issuers of U.S. dollar payment stablecoins from paying interest or yield directly to holders, aiming to keep stablecoins focused on payments.

The current debate centers on how strictly that ban should be applied. Crypto firms argue that limiting rewards could weaken the competitiveness of U.S. stablecoins against foreign alternatives and CBDCs, while banking groups are urging regulators to enforce a broad prohibition.

In a Dec. 18 letter, the Blockchain Association and over 125 crypto industry participants urged Congress to reject efforts to expand the GENIUS Act’s prohibition on interest or yield. “Claims that stablecoin rewards threaten community banks are not supported by evidence,” the letter said.

Meantime, the American Bankers Association published a separate letter the same day, calling on lawmakers to strictly enforce the GENIUS Act’s ban on yield-bearing stablecoins, arguing that some crypto exchanges are interpreting the law in ways that allow reward-like incentives and could undermine traditional banking activity.